UK lawmakers underline key stability and privacy risks of CBDCs

A report by the House of Lords’ Economic Affairs Committee has warned how a digital pound could harm financial stability, raise credit costs and erode privacy.

According to Reuters, despite this, a version of the digital pound for wholesale use in the financial sector demands greater appraisal.

Back in November 2021, the Bank of England (BofE) revealed it intended to launch a consultation to set out their assessment of the case for a UK central bank digital currency (CBDC) next year. They said at the time that the CBDC would be introduced after 2025 at the earliest.

In May last year, this process was initiated when UK Chancellor of the Exchequer Rishi Sunak told the BofE to look at the case for a potential ‘Britcoin’ or central-bank-backed digital currency.

The House of Lords stated that as an e-pound used by households and companies for everyday payments could see people move cash from commercial bank accounts to digital wallets, this could spark financial instability in times of economic stress and increase borrowing costs as a key source of lenders’ funding would dry up. In addition, as the CBDC would allow the BofE to monitor spending, a digital pound could also harm privacy – the Committee said.

The report added that a wholesale CBDC used to transfer large sums could make securities trading and settlement more efficient. It also stated that Britain’s central bank and finance ministry should consult on its advantages over the expansion of the existing settlements system.

The UK Parliament should also be given the final say on any decision to launch an e-pound and should let its lawmakers vote on how such a currency would be governed, the report detailed.

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